Monday 30 April 2018

Sainsbury's/Asda merger

Well, this big story has been rumbling for a few days. It has gone down very well with the Sainsbury's share price. Not surprising really as although this is called a merger it is not at all. Sainsbury's management will take over Asda and in return, Asda's owner, the US retailer Walmart, will get around 42% of Sainsbury's.

Of course, the ignorant Labour rep, Rebecca Long-Bailey claims that this will be bad for customers and workers - parroting the Union line as usual. But wait!

Is she right here, in the stopped clock right twice a day sense? A combined business will have a 30% market share not far off the size of Tesco. The UK will have gone in 15 years from 6 large supermarkets to only three, yes there have been new entrants like Aldi and Lidl (and Amazon), but still a huge drop. As a good capitalist, I am always sympathetic to the view that large corporates will try their best to create oligopolies where possible to the detriment of their customers - it has always been this way.

In contrast, the two companies clearly think they will get this through any Government oversight. They claim that with a lower market share than Tesco and disparate stores which do not compete in local markets (north vs south) it will be fine. Indeed, prices will be lower (of course, this is due to Brexit not the merger, but they don't find room to say that).

Overall though, the UK has a very competitive food market and the big dislocation is online and big-box German style discounters, neither of which factors is addressed by this merger. This is a classic defensive move to try to get some benefits from shared buying and shared IT services - so bad for suppliers and for non-customer facing staff. It won't really help in the long-term with the changes being faced by supermarkets that have huge out-of-town warehouses that don't meet the needs of the internet savvy consumers anymore.

So is this a conspiracy against the supply chain and customers? Probably.

Will this work though? No, too much change in the market caused by the internet for it to be more than a bandage for a few years.


dearieme said...

Isn't it just the ordinary sort of manoeuvre you see by companies in markets in irreversible decline?
They merge to save costs as their revenues fall.

I was struck by advice I received recently from a member of one of the medical trades. She suggested I buy a particular gadget. "Where would I find that?" She replied "The same place everyone buys everything of course - Amazon."

Anomalous Cowshed said...

I agree with dearieme; it looks like Walmart have decided to get out because they can, and Sainsbury's can't - they're locked in, but get a bigger slice of what's going to be a smaller pie.

The deal apparently values Asda at ~£7b, and they get 42% of the combined firm, but they also walk away with ~£3b cash, so ~£4bn / .42 values the merged stores at ~£9.5bn.

Post-merger, the group will have 2,800 stores, but this includes Argos and whatever's left of Habitat (Home Retail Group). Asda seem to have about 640 food stores, with Sainsbury having 605 supermarkets with 807 convenience stores, so you end up with about 1,200 food based supermarkets. I can't see the CMA being fussed about non-food stores, or the convenience stores for that matter, so they'll probably have to shut 80 to 100 of the supermarkets.

I suspect that the bulk of those will be Sainsbury's, and that the group will move towards the Aldi/Lidl discount model, probably with lots of own brand stuff, with only the superstores retaining the current model.

CityUnslicker said...

Great comment Cowshed - they are going to really struggle to find buyers for 80-100 supermarkets in out of town sites in Northern England. They will be anchor tenants too for a lot of these places - the winds of change eh?

Anomalous Cowshed said...

"they are going to really struggle to find buyers for 80-100 supermarkets in out of town sites in Northern England."


The thought occurs that they don't necessarily have to sell the stores - just close them, as stores, and convert them to warehouses focused on home delivery (perhaps retain a small counter service along the lines of the old Argos stores).

That suggests that most of the store closures/conversions will be in the south-east, or in and around major towns/cities, where the density of settlement means you can fulfil more online orders per mile in the van (from memory, settlements of about 2,000-4,000 households are about 5 miles apart in the south-east, about double that up north).

To play silly buggers for a moment; you could then make out that there's an Asdabury's personal shopper at the other end of your browser, and the notional reduction in the number of customer car journeys reduces pollution making everyone's kids healthier. Gonna look great in the CSR statement in the next R&A.

And no job losses. At least not any that actually count.

Anonymous said...

I’ve just rediscovered Sainsbury’s. The nearest one is a good twenty miles away. After far further than Asda or Morrison’s or Tesco or Lidl.
Going into a sainsburys after spending a few years at Asda and Morrison’s is a revelation. I feel exactly like I did the first time I visted the USA in the 1980s or a French supermarket today, and saw items and foods and choice I couldn't imagine.

But the Sainsbury’s shop works out about 20% more for essentially the same items. 30% more if you are a Lidl goer.
So it can never be the regular shop. Just a luxury.
And the Sainsbury’s is 4 Times the size of the Waitrose.

Anonymous said...

But the Sainsbury’s shop works out about 20% more for essentially the same items.

That's the issue. Sainsbury’s have been defying gravity for a while as Aldi/Lidl nibble away.

Instead of one shop we are doing 3 or 4 - Lidl for basics (and they are very good); ASDA for the brands; and M&S for the quality food though that is beginning to look like their nickers' issue now.

You can't buy customer loyalty with points and trinkets if the basics aren't right.

Anonymous said...

@ "quality food though that is beginning to look like their nickers' issue now"


Nick Drew said...

The Drew household has got itself into an interesting (and beneficial) retail algo-loop just now

meself & Mrs D shop not only for ourselves but for old Ma Drew, with a reasonable (though not astronomic) combined grocery spend. We have excellent Tesco and Sainsbury within easy reach

Both of them are bombarding us with successive batches of three weeks-worth of "money off when you spend ..." coupons on a very tight but reciprocal cycle: so we alternate between the two, averaging >10% descuento: it's not too difficult to hit the min. spend with a bit of booze on the weekly list

It's been going on for months. I have to believe their algos have clocked the Drews as as "will shop with us when we send them coupons / won't shop with us when we don't" (which is of course exactly correct) and they each leave an alternating 3-week gap between every batch

One day the validity dates of their coupons will overlap and we'll disappoint one of them, who'll presumably take the huff. Meantime, if they'd just care to reintroduce those coupons for 10p/l off petrol ...

Electro-Kevin said...

It Asda be Live well WITH less.

Timbo614 said...

@ND: Hello, still lurking here, might start posting more again when I retire from my current contract in 87 days time, not that I'm counting!

The missus cottened on to this quite a while ago and here in sunny(not) Woking we have within striking distance the entire range of supermarkets (Tesco is furthest at about 6 miles) but there you can walk directly from Tesco into M&S without even going outside.
As you say - Ignore one for about three weeks and presto! Loads of coupons in the post.
Closest is Waitrose (for emergeny and fancy-somthing-nice), then Morrisons, Asda, Sainsbury's and finally Tesco/M&S. I think there's a Lidl not too far but I keep forgetting where it is :(

On a capitalist note I'm glad I sold out of my Supermarket shares a few years ago. Online will win eventually. Cowshed has the right idea for me: order online - pickup 10 minutes later which is the Screwfix Model. They are about 1.3 miles away so no problem.

dearieme said...

We too had been using the voucher trick, though our supply has dried up since Xmas. The Tesco voucher doesn't cover booze and demands an £80 spend. That's usually too much for us. We've become regulars at Waitrose (helping an incapacitated friend) and Sainsburys (cheap delivery). We also use Aldi, M&S, and the vastly improved Co-op.

We trust none of them to chose fresh food for us though. A brave soul has opened a small greengrocer chain locally. Excellent, especially the shop that's just across a court from a good butcher.

Electro-Kevin said...

The Asda shoppers will be like concentration camp victims being introduced to a sumptuous diet of real (rich) food when Sainsbury's come into the mix.

Perhaps they should be introduced to taster portions as a precaution, what with being unused to food that isn't bulked up with water, sugar and sawdust.

Electro-Kevin said...

I had an Asda mini Scotch egg once and it was like trying to swallow a fur ball.

Anonymous said...

I'm never sure how Sainsburys keep going, their stuff is so pricey, even own-brand. OTOH, like Waitrose, their own-brand is better quality than a lot of independent brands. Some drinkable house wine too.

I can't see this ending well though. Talking of which, it looks as if Israel, having attacked Syria and killed a lot of SAA troops last night, is about to attack Iran, if the emergency legislation just passed (basically PM/Defence minister can declare war sans Parliament - unusual outside of a monarchy) is any indicator.

"On the first visit, less than two weeks after Sept. 11, he writes, a "senior general" told him, "We're going to attack Iraq. The decision has basically been made." Six weeks later, Clark returned to Washington to see the same general and inquired whether the plan to strike Iraq was still under consideration. The general's response was stunning: "'Oh, it's worse than that,' he said, holding up a memo on his desk. 'Here's the paper from the Office of the Secretary of Defense [then Donald Rumsfeld] outlining the strategy. We're going to take out seven countries in five years.' And he named them, starting with Iraq and Syria and ending with Iran." While Clark doesn't name the other four countries, he has mentioned in televised interviews that the hit list included Lebanon, Libya, Somalia and Sudan."

Yet Saudi Barbaria gets a free pass to bomb as many Yemeni weddings as it likes, despite providing 16 of the 19 9/11 killers. Odd.

E-K said...

How the hell did we go from Asda mini-eggs to Saudi ?